Jordan Mazur is legal counsel for Zenefits. This article is for informational purposes only and does not constitute legal or tax advice.
As the GOP searches for votes to push through its reform of the ACA (Affordable Care Act), I thought it was a good time to reflect on what this all means for small and medium businesses in America. Here’s an overview of what’s happening with the American Health Care Act, and where it’s headed.
The first major step toward reforming the American healthcare system was taken with the March 6, 2017 introduction of the American Health Care Act (AHCA) to the House of Representatives. The Republican leadership constructed the proposed set of reforms with an intent to:
One of the hallmarks of the Affordable Care Act (ACA) is the mandate that employers with fifty or more employees must offer health insurance or pay penalties. The AHCA proposes to eliminate that requirement and those penalties retroactively to January 1, 2016. However, employer reporting would still be required using the 1094 and 1095 forms created by Obamacare.
Employers offering particularly rich benefits plan offerings have been facing the “Cadillac tax” that punishes plans with significantly above-market benefits with an extra tax. The AHCA proposes to delay the Cadillac tax until 2025, possibly setting the stage for full repeal of the tax eventually.
The ACA eliminated a business tax credit for the cost of certain prescription drug plans under Medicare Part D. The AHCA would reinstate that tax credit. But the small business tax credit created by Obamacare, to encourage companies who are not required to offer coverage to do so voluntarily, would be repealed by the AHCA.
Some employer groups have expressed concern that companies have spent significantly to build processes and practices to comply with the ACA, only to be faced with a new set of obligations under the proposed law. However, these concerns are likely to be outweighed for most businesses by the relief provided by the AHCA. There are, however, proposed rules about how much employees may designate on a pre-tax basis for various employer-sponsored savings accounts.
Obamacare’s individual coverage requirement and penalty are also proposed to be removed by the AHCA, with the 2016 tax year penalties being refunded if they have been paid. In their place, AHCA proposes to permit insurance companies to charge 30% more to any insurance applicant who has gone more than 63 days without coverage. The certificate of creditable coverage already required under HIPAA would be used to police an individual’s coverage dates.
Individuals will also be able to contribute an unlimited amount of pre-tax dollars to Flexible Spending Accounts (FSAs), as opposed to being capped at $2,600 as they are now. Health Savings Accounts (HSAs) are also scheduled to increase contribution maximums and reduce penalties for claims that were not supposed to have been reimbursed. Obamacare’s prohibition of the reimbursement of over-the-counter medications without a prescription would also be repealed by the AHCA.
While ACA tax credits were based primarily on income, AHCA tax credits would be based on an individual’s age, with the amount of the credit increasing as a person ages. The credits are phased out as individual income exceeds $75,000. The lower credits for most people will likely change the calculus for obtaining insurance, especially among healthy individuals, according to the nonpartisan Congressional Budget Office (CBO). For age-banded rates, Obamacare had limited the premium for older individuals to 300% of the premium for younger individuals on the same policy, while the AHCA proposes to increase that permissible spread to 500%.
The refundable tax credit for low-income individuals will be replaced with a less-generous tax credit that is restricted to plans that do not provide certain women’s health care services related to abortion. Any individuals who have received advance premium tax credits under the ACA will be required to repay those credits.
Some of the more popular Obamacare provisions, including the guarantee of coverage availability, the prohibition against discrimination, and the ability for dependents to remain on parents’ coverage through age 26, would remain under the AHCA. Additionally, plans must still cover the “essential health benefits,” including pregnancy-related care, created by the ACA. (Note: last-minute negotiations have focused on repealing the essential health benefits requirement as part of the AHCA.) The prohibition against denying coverage for pre-existing conditions would be modified to apply only to individuals who maintain continuous coverage.
Certain Obamacare taxes on the industry, for example on tanning services or on medical devices, would be repealed under the AHCA. Carriers and providers have, however, expressed uncertainty about the elimination of the coverage mandates and the potential impact on adverse selection – the concept in insurance that suggests that if only unhealthy people who need insurance purchase it, the economics of furnishing the insurance cease to make sense for providers. The CBO report underscores this concern, finding that 14 million people would be likely to become uninsured as a result of the AHCA in the next year alone, and 24 million over the next ten years, as a result of the employer and individual mandate repeals. These numbers represent a net gain of 4 million more uninsured Americans than the 48 million who were without insurance prior to the ACA. The industry concerns have been reflected in the lowering of healthcare stocks in recent days as the CBO and other organizations raise concerns about the viability of the bill.
Medicaid expansion, a key aspect of Obamacare, would be curtailed and eventually rolled back. While Medicaid funds are presently allocated based on a federal matching formula, the AHCA would give states the option to receive funds on a per-participant basis or as a block grant. Additionally, money would be set aside to assist those states that have not expanded Medicaid.
States would be responsible for a higher degree of Medicaid administration and decision-making. If states elect to receive block grants, they are not required to cover any family planning services. The law also proposes to allow states to require able-bodied non-elderly adults to be employed in order to receive Medicaid, and incentivizes states with up to 5% federal matching funds if they make this election. However, the burden on states is one that Republican Governor Rick Snyder of Michigan and others have suggested outweighs the potential benefits of the bill.
The CBO estimates a net reduction of the federal deficit by $337 Billion by 2026 under the AHCA. The law delivers much-needed simplicity and flexibility around health expenditure savings accounts. And the employer and individual mandates, contentious revenue and enforcement mechanisms under Obamacare that are often painted as unnecessarily punitive, would be eliminated by the AHCA.
However, political pressure has mounted to oppose the bill. House Democrats have decried the AHCA as a huge loss for American seniors, those who may not be able to afford healthcare, and the overall pursuit of a more-covered populace. Conservative Republicans have likewise indicated substantial concerns about the bill. From the House Freedom Caucus’ perspective, the bill is simply Obamacare-Lite, and maintains far too much of the overreach and regulation that caused the ACA to be so unpopular among conservative Republicans. Without the support of any Democrats, the Republicans can afford just 21 defections from their majority to pass the bill, while conservative Republicans expressing substantial doubts about voting for the bill have numbered at least 27 in recent days.
President Trump has made healthcare reform a signature promise of his platform since his candidacy was first announced, and he has actively worked to ensure the bill’s passage. If the House is unable to pass this bill, the White House is likely to push for another attempt at significant reform with the aforementioned goals sooner rather than later, and most likely in advance of the House’s summer recess later this year.
If the House is able to find an acceptable bill to a majority of its members, the bill will move to the Senate, where another round of battles is expected.
As the debate continues, business owners should continue to follow current requirements and not get sidetracked by the possibilities of different versions of reform bills, despite the widespread news coverage! I’ll be back to share my thoughts in the coming weeks.